Table of Contents
Impact of the pandemic on poverty levels
- The COVID-19 pandemic has had a severe economic impact. The economy has contracted with many being pushed into poverty. As a result Poverty rose during the COVID-19 pandemic. Extreme poverty, defined by the World Bank as the percentage of the population with an income below $1.90, rose from 7.6% in November 2019 to 11.7% in July 2021.
- Even though there has been a V-shaped economic recovery, output remains about 10% lower than 2019.
Editorial Analysis For UPSC IAS Current Affairs Preparation
Impact of the pandemic on income inequality
- The general perception is that the poor bear the brunt of any economic disruption given they remain the most vulnerable to economic disruptions because of their reliance on contractual protections and lack of adequate safety nets.
- The article argues this usual trend was not observed during the COVID-19 pandemic in India wherein interestingly it notes that income inequality has actually fallen.
Understanding the trend of income inequality
- The article attributes this trend to a fall in the income levels of households in the top 25% of the income distribution and the almost steady or slight increase in the income levels of households in the bottom 25% of the income distribution. The result is that inequality, measured as the percentage change in the income of the top quartile minus the income in the bottom quartile, fell by 15-20 percentage points.
- The article examines three sources of household income: government transfers, business profits, and labour income to explain the above observation.
- Government transfers includes cash or in-kind payments to support the vulnerable population. Profits Includes income from business initiatives while labour income includes wages earned from work or employment contracts.
- The government had targeted government payments to the poor to help limit the adverse economic impact of the pandemic on them.
- The rich saw a larger decline in business income. The rich depend on this type of income more than the poor. Business income being highly volatile given its susceptibility to changes in demand and macro-economic conditions of the economy suffered steeper declines than labour income levels.
- Labour income account for the largest share of the total income of both the rich and poor, with the poor accounting for the most. When the economy contracted, people lost jobs and income. These workers tried to compensate by finding alternate work, even while accepting lower pays. Notably as per the analysis carried out by the article, while the minimum amount that the poor were willing to accept to take a job fell roughly 40%, the minimum amount fell more than 45% for the rich. Also the larger loss of labour income among the top quartile households is because the demand for their labour fell more. The rich tend to work in the service sector, and demand for services fell more than demand for other sectors like manufacturing or agriculture.
Editorial Analysis For UPSC IAS Current Affairs Preparation
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